The FTSE 100 has nudged up 1.5 per cent and the FTSE 250 is up 4 per cent this morning as markets react to a historic Conservative victory at the general election. Here, leading managers weigh in on the result:
Richard Buxton, head of UK equities, Merian Global Investors
Few people relished the prospect of the first December UK general election since 1923, but for all the rough and tumble of the campaign, from an investor’s perspective today’s clear majority for the Conservative Party is a welcome result.
Writing before the full result is known, what has become clear is that the size of the anticipated Tory majority means that Prime Minister Boris Johnson will no longer be beholden to the more extreme Eurosceptic elements in his party.
The initial result may well be accompanied by frequent restatements of Johnson’s oft-repeated commitment to “get Brexit done.” In practice though, the sheer scale of his working majority will mean that the Prime Minister should, ultimately, be in a position to allow the transitional timetable for the UK’s departure from the EU to slip over the course of 2020, greatly reducing the risk of a “cliff-edge” departure from the EU in a little over 12 months from now.
This, in its own right, is a significant development, given a widespread acceptance among informed commentators that the likelihood of settling trade negotiations in a period of less than a year is extremely small.
I expect to see business confidence respond positively to this new set of political realities, which in turn should be genuinely positive for the UK economy.
The next Budget, which is expected to be announced in February, is likely to be loose in terms of fiscal spending, and therefore stimulatory in economic terms. I expect consumer confidence – remarkably resilient in recent years notwithstanding all the uncertainty – to strengthen significantly.
Guy Foster, head of research, Brewin Dolphin
With the political deadlock over Brexit at last seemingly on the way to resolution, the outlook for investors appears more positive than it has for some time.
International investors who avoided UK assets in the aftermath of the Brexit referendum may be encouraged back to the market after the election result. While a stronger pound will hit earnings for multinationals earning their profits overseas, it should be positive for domestically-orientated companies.
However, it is important to keep the general election result in perspective, and prospects for investors are reliant on far more than Brexit alone.
The US presidential election is less than a year away and it remains to be seen whether Americans will continue to support President Trump’s brand of populism, while the US-China trade dispute drags on, and there is civil unrest in Hong Kong. However, in the run-up to the American election we would not be surprised to see the President focusing on strengthening the economy in the short term and coming to an agreement with China, which would give global trade a boost.
Whatever happens over the coming months, both with regard to the future Brexit negotiations and wider global events, we are monitoring events carefully and will react accordingly.
Emma Mogford, portfolio manager of the BNY Mellon UK Income Fund
A decisive election result means we can move on from politics to policy. The size of the majority also gives the PM breathing space to decide on the shape of the UK’s future trading relationship with the EU and the rest of the world. There is a clear mandate to leave the EU, but with a comfortable majority Boris Johnson is not necessarily beholden to the European Research Group [of europsceptics].
With a Conservative majority, per its manifesto, current spending and tax revenues will each be about £3bn higher than previous budget forecasts. For gilts and sterling this means little change. A rally in equities and sterling is understandable given the removal of uncertainty. We might see a slight softening in the gilt market for the same reason. However, a conservative majority had already been priced in to the market so we don’t expect to see a large change in the short term.
2020 may be a different story, as the difficult negotiations on the future trading relationship with the EU begin. Until that is clear, business investment will likely remain on hold, and the next Budget is unlikely to bring significant fiscal stimulus.
The problem with the Conservative’s approach is that by ruling out any increases in the three main personal taxes, they have closed off one financing avenue if greater public spending is needed, such as for the NHS, or if pursuit of a clean break with the EU at the end of 2020 leads to further economic weakness. Extra borrowing would therefore be required to plug the gap, with the majority of it financed by additional gilt issuance.
Karen Ward, chief market strategist EMEA, JP Morgan Asset Management
Appetite for UK assets should improve materially in the coming days and weeks. For investors, perhaps the most significant news is that Jeremy Corbyn, the far-left leader of the Labour Party, will stand down. Sterling has already bounced and could go higher if the Bank of England remove their dovish rhetoric, as we suspect. Completing the Brexit process remains a herculean task that will take considerably longer than the eleven months currently planned, but in the near-term we are likely to see UK equities move higher alongside sterling.
John Husselbee, multi-asset team, Liontrust
An election that was all about Brexit has resulted in a significant victory for the Conservatives. The nation decided that “Get Brexit Done” was the priority for the next government and, given this mandate, I expect we will see Prime Minister Johnson act swiftly. This removes the near-term uncertainty and should give a much-needed boost to both corporate and consumer confidence. There is also the post-election pledge to spend on health and safety, which will further support a pickup in UK economic activity.
The initial market reaction will likely be a reversal of the moves since the EU Referendum: a stronger pound, a recovery in domestic industries and, considering the proposed fiscal spend, potentially higher Gilt yields. The relief rally may be short lived, however, as the PM and his cabinet start to negotiate a trade agreement, with the possibility of a hard Brexit still among the options.